George Osborne announces scheme to "max out Plan A" by injecting £100bn of "new firepower" into bank lending

George Osborne, in his annual Mansion House speech last night, has announced a bumper package of Bank of England schemes to help beat the €urozone debt crisis.

The major announcement was a new plan to get British banks lending to businesses again - a support scheme of more than £100bn to offer cheap loans to businesses and families. His aides called it "maxing out Plan A", while Sir Mervyn King - with whom the Chancellor will be working closely to ensure the Bank of England pushes the schemes through - called it "a textbook response" to the credit crunch. The new lending is necessary, because Britain needs to to escape the grim "debt storm" in the €urozone. George Osborne said:

"I can tell you today that the Governor and I will take coordinated action on liquidity and on funding for new bank lending in order to inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy. We are not powerless in the face of the eurozone debt storm. Together we can deploy new firepower to defend our economy from the crisis on our doorstep. Funding for lending to the family aspiring to own their home and the business that wants to expand. Liquidity for our high street banks."

He continued:

"The Government - with the help of the Bank of England - will not stand on the sidelines and do nothing as the storm gathers. We are rolling up our sleeves and doing everything possible to protect British families and firms."

The announced support schemes for the British economy come in four strands of funding:

A "funding for lending" scheme to cut bank funding costs in exchange for lending commitments. The Treasury says this programme could support an estimated £80bn in new loans, and will become operational "within a few weeks". The support will be conditional upon "the peformance of banks in sustaining or expanding their lending to the UK non-financial sector during the present period of heightened uncertainty"

Today, the Bank of England will activate an emergency scheme offering six-month liquidity to banks in tranches of a minimum of £5bn a month

In addition to the Bank of England lending schemes announced by Osborne, the Treasury will underwrite some of the risk of new infrastructure and housebuilding projects over the coming weeks

Sir Mervyn also raised the prospect of a new round of quantitative easing, as he warned of a "large black cloud of uncertainty hanging over our economy", in the form of the €urozone crisis

Osborne's free-market critics are unlikely to be enthused by his Mansion House speech. Douglas Carswell MP blogged ahead of the speech that Osborne should have announced: "Instead of stimulus economics, we need to deal with the underlying problem of competitiveness. We will deal with the zombie banks. We will ditch the crony capitalist model we now have, and introduce the free market model we urgently need".

"It is absolutely right for the central bank to provide liquidity to private banks if the markets seize up; that is its core role as lender of last resort. It makes sense for the Bank to be on standby ahead of Greece’s elections this weekend. But the fact that this liquidity will be provided cheaply (rather than at a penal rate) will be seen as an unnecessary hidden subsidy."